June 25 (Bloomberg) -- Two Federal Reserve presidents who
differ over the need for more stimulus emphasized that monetary
policy remains accommodative, less than a week after a timeline
to reduce bond purchase jolted financial markets.

“What we’re talking about here is dialing back,” Richard
Fisher, president of the Federal Reserve Bank of Dallas, said in
London yesterday. “The word ‘exit’ is not appropriate here,”
said Fisher, who doesn’t vote on policy this year and has been
critical of the Fed’s easing policies.

Minneapolis Fed President Narayana Kocherlakota, who has
called for easier policy, said yesterday the Fed must emphasize
in its statement that policy will remain accommodative “for a
considerable time” after the end of quantitative easing. “We
have to bring that forward and hammer it every time we talk
about policy,” Kocherlakota, who also doesn’t vote this year,
said to reporters in a conference call.

Fisher and Kocherlakota both vote next year on the Federal
Open Market Committee, when the members will be deciding when to
end asset purchases, assuming they follow the timeline set out
last week by Chairman Ben S. Bernanke. New York Fed President
William C. Dudley, who has a permanent vote on the panel, said
on June 23 the Fed has been too optimistic about the economy in
the past.

The Fed officials’ comments highlight the challenges they
confront while seeking to lay out a strategy for curtailing the
asset purchases that have pushed the Fed’s balance sheet to a
record $3.47 trillion. The Standard & Poor’s 500 Index has
fallen 4.8 percent since June 18, the day before Bernanke said
the Fed could start reducing $85 billion in monthly bond
purchases this fall and end them in the middle of next year if
the economy meets the Fed’s forecasts.

Opposing Actions

Kocherlakota and Fisher dissented against two decisions by
the FOMC in 2011, opposing actions to add stimulus.

In September 2012, Kocherlakota announced in a speech that
his views had changed, citing low inflation and research that
suggested high unemployment was driven by economic weakness and
not structural changes in the labor market. Fisher has remained
among the most vocal critics of the Fed’s record accommodation.

The two Fed regional bank presidents yesterday signaled
they weren’t worried about investors’ response to last week’s
policy announcements.

The Standard & Poor’s 500 Index slid 1.2 percent yesterday
to 1,573.09. The yield on the 10-year Treasury note traded at
2.54 percent late yesterday in New York, an increase from 2.19
percent on June 18.

Higher Yields

Kocherlakota said the market’s reaction to the Fed
statement “so far is not a cause for concern.” At the same
time, if yields continue to stay higher, “that would be
restrictive to economic conditions” and suppress both prices
and employment.

Speaking to reporters after his speech, Fisher said he was
“not uncomfortable” with the current level of Treasury yields.

Investors shouldn’t overreact to the central bank’s plan to
reduce the pace of asset purchases, the Dallas Fed chief said in
an interview with the Financial Times published yesterday on its
website. Investors behaved like “feral hogs” after the June 19
comments by Bernanke, he said, according to the newspaper.

“Fed policy is absolutely stimulative, and the federal
funds rate remains at zero,” said Charles Lieberman, chief
investment officer at Advisors Capital Management LLC in
Hasbrouck Heights, New Jersey, and former head of monetary
analysis at the Federal Reserve Bank of New York.

Unemployment Rate

The end of bond buying by the central bank should be tied
to a threshold for the unemployment rate, Kocherlakota said. The
jobless level in May was 7.6 percent.

“The committee should continue to buy assets at least
until the unemployment rate has fallen below 7 percent,” he
said. The purchases should continue “as long as the medium-term
outlook for the inflation rate remains below 2.5 percent and
longer-term inflation expectations remain well anchored,” he
said.

Fed presidents typically don’t issue statements and hold
press briefings reacting to the FOMC statement. Instead, they
usually describe their views in speeches and in media
interviews.

“It is a little unusual for a non-voting member to put out
a statement,” said Michael Hanson, senior U.S. economist for
Bank of America Corp. in New York. Fed officials attempting to
clarify the Fed’s intent are “challenged between finding simple
ways to communicate with the markets and comprehensive ways to
communicate with the markets,” said Hanson, a former Fed
economist.

Bernanke’s Outline

Bernanke last week emphasized that decisions to alter the
pace of asset purchases depend on the economy’s performance, and
that the Fed has “no deterministic or fixed plan” to end
purchases. Policy makers last week issued new forecasts for
economic growth that are more bullish than those of private
economists.

“Despite an aggressive shift towards greater monetary
policy accommodation in 2008 and 2009, and ongoing subsequent
easing -- which has supported a return to growth and helped to
facilitate needed adjustments in housing and household balance
sheets -- the economic recovery has been consistently weaker
than forecast,” he said in a speech in Basel, Switzerland.

“As a result, the Federal Reserve has fallen short of
meeting its employment and inflation objectives,” he said.
“This suggests that with the benefit of hindsight, U.S.
monetary policy, though aggressive by historic standards, was
not sufficiently accommodative relative to the state of the
economy.”